Surety Case Law Note: Miller Act Labor, Limitations and Estoppel
May 16, 2023
In this Surety Today Blog post we consider a Case Law Note addressing the issues of what constitutes “labor” under the Miller Act, the application of the Miller Act statute of limitations and estoppel – the trifecta! Just as an aside, I represented a different surety on a claim relating to the project at issue in this case in 2018 and we dealt with the same project manager that is at the center of this case. I was surprised to see this matter arising after so much time has passed. The case is:
UNITED STATES EX REL. DICKSON v. FID. & DEPOSIT CO. OF MARYLAND, NO. 21-1160, 2023 WL 3083440 (4TH CIR. APR. 26, 2023)
The Department of Defense contracted with Forney Enterprises as the prime contractor to renovate 10 staircases at the Pentagon and the accompanying fire suppression systems. Forney Enterprises subcontracted with Elliott Dickson, a professional engineer, to work as a project manager on that contract. The bulk of Dickson’s work focused on supervising labor on the site. But Dickson performed many other tasks, including logistical and clerical duties, taking various field measurements, cleaning the worksite, moving tools and materials, and sometimes even watering the concrete himself. This work required Dickson to be at the project site almost daily.
In December 2018, Forney’s contract with the government was terminated for default. Forney was directed to stop all work, except for the work on staircases 1 and 2, and cleaning up the worksite. The government also ordered Forney Enterprises to submit a materials inventory. Dickson conducted this on-site inventory and his last day on the project was February 8, 2019.
On January 10, 2019, Dickson submitted a claim to the surety for approximately $400,000 for his work on the project. On January 14, 2020, the surety denied the claim, in part because Dickson failed to provide evidence that he had performed “labor” as required for recovery under the Miller Act. On February 5, 2020, Dickson filed suit against the surety. The Eastern District of Virginia granted summary judgment for the surety, holding that Dickson’s work did not qualify as “labor” for Miller Act purposes, stating that supervisory work is generally not “labor.” The District Court found that “any de minimis physical work by Plaintiff was merely incidental to his contractual duty to supervise.” The District Court also held that even if Dickson’s supervisory work qualified as labor, the project concluded on January 31, 2019, and the later inventory was a “clerical task” that did not fall within the definition of labor under the Miller Act. On appeal, the Fourth Circuit disagreed with the lower court’s analysis of the nature of supervisory work, but agreed that the claim was barred by limitations.
The Meaning of Labor Under the Miller Act
The Miller Act specifically protects “persons supplying labor” and “any person who has furnished labor … provided for in a contract.” § 3131(b)(2). The Fourth Circuit observed that courts have largely agreed that tasks involving “physical toil” are labor and that “on-site supervision of physical toil” is also labor. Citing Luong v. W. Sur. Co., 485 P.3d 46, 51–52 (Alaska 2021)(collecting cases); United States ex rel. Barber-Colman Co. v. U.S. Fid. & Guar. Co., No. 93-1665, 1994 WL 108502, at *3 (4th Cir. 1994); United States ex rel. Constructors, Inc. v. Gulf Ins. Co., 313 F. Supp. 2d 593, 597 (E.D. Va. 2004). The Court then engaged in a long discussion of the interpretation of “labor” under the Heard Act, the predecessor to the Miller Act, and how the question of labor was addressed in state statutes. Ultimately, the Fourth Circuit disagreed with the lower court and held that the bulk of Dickson’s work involved both direction and supervision of manual labor and occasional performance of manual labor and therefore qualified as “labor” under the Miller Act.
Miller Act Statute of Limitations
Turning to the issue of limitations, the Court began by noting that Dickson’s labor ended on January 31, 2019. The Miller Act statute of limitations runs “one year after the day on which the last of the labor was performed.” § 3133(b)(4). Dickson’s supervision of other workers was last performed more than one year before suit was filed. The only on-site work Dickson completed within one year of filing suit was taking a final inventory on February 8, 2019. Dickson’s final inventory did not involve any supervisory work, as he did it himself. Thus, the Fourth Circuit held that the inventory did not satisfy the meaning of labor under the Miller Act and was merely clerical—mostly paperwork. The Court stated that the taking of the final inventory of a job site lacks the “physical exertion” and “bodily toil” required to qualify as labor. “[I]t is not enough that an act is technically ‘physical’: it must rise to ‘exertion’ or ‘toil.’ And Dickson’s inventory simply did not.” Because the labor ended no later than January 31, 2019, the suit was filed outside the one-year limitations period under the Miller Act and was barred.
Equitable Estoppel
The final issue addressed by the Court was whether the surety was estopped from asserting the statute of limitations defense. The Court noted that estoppel is an equitable defense based on the principle “that where one party has by his conduct induced the other party to a transaction to give him an advantage which it would be against equity and good conscience for him to assert, he would not in a court of justice be permitted to avail himself of that advantage.” United States ex rel. Humble Oil & Refin. Co. v. Fid. & Cas. Co. of N.Y., 402 F.2d 893, 897 n.3 (4th Cir. 1968). In the Fourth Circuit, estoppel does not require unjust or fraudulent conduct by the estopped party, only that “the person estopped, by his statements or conduct, misled another to his prejudice.” Id. at 898 (quoting United States ex rel. Noland Co. v. Wood, 99 F.2d 80, 82 (4th Cir. 1938)). Nonetheless, the reliance must be “unmistakably” foreseeable by the estopped party. See Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir. 1987). The reliance of the other party must also be objectively reasonable. See id. at 1128–29 (“One who fails to act diligently cannot invoke equitable principles to excuse that lack of diligence.” (quoting Baldwin Cnty. Welcome Ctr. v. Brown, 466 U.S. 147, 151, 104 S.Ct. 1723, 80 L.Ed.2d 196 (1984))). The Court further observed that in Miller Act disputes, estoppel “arises where one party by his words, acts, and conduct led the other to believe that it would acknowledge and pay the claim, if, after investigation, the claim were found to be just, but when, after the time for suit had passed, breaks off negotiations and denies liability and refuses to pay.” Humble Oil, 402 F.2d at 897 (quoting McWaters & Bartlett v. United States ex rel. Wilson, 272 F.2d 291, 296 (10th Cir. 1959)).
When the surety denied the claim it expressed the desire to work with Dickson “in a cooperative manner to reach a practical resolution” to his claim. The surety then asked Dickson to resubmit his Proof of Claim, and then stated that “[o]nce the Surety has received your revised Proof of Claim, it will conduct another review to determine any amounts recoverable under the Payment Bond.” The letter expressly reserved all rights. The Court noted that a previous communication from the surety made the reservation: “Our actions are taken for the purposes of investigation only, and the Surety reserves all rights and defenses ….Nothing stated or unstated in this or any other correspondence is intended or should be construed as an acknowledgment of liability…or as a waiver of any right or defense ….”
The Court held that under the facts of the case there was no affirmative indication that the surety would acknowledge and pay the claim. There were no negotiations or promises to pay. Instead, the surety only promised to investigate the claim. Not only did the surety not promise to acknowledge and pay the claim, but it repeatedly made clear that its communications were for investigative purposes and reserved all rights and defenses. Thus, the Court held that there was no equitable estoppel.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321 or mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group.